Power Sector Reform in Vietnam

Abstract

The power sector in Vietnam has been dominated by state owned corporation, namelyElectricity of Viet Nam (EVN). The corporation is in charge of developing almost all power projects,covering generation, transmission and distribution aspects. Although some projects do not belongto EVN, the share of them is still quite minor. At present, there is no competition and no choice forcustomers dealing with this centralized decision making.Up to 2010, Viet Nam is to invest in a number of power projects, which requires hugeinvestment capital requiring high demand of capital. EVN alone does not seem to be capable tofinance by itself. EVN has involved the participation of the private sector. Facing with challenges inmarking the transition to a modern, industrialized economy, to meet the increasingly high demandfor electricity, due to restriction of EVN itself capital as well as the willingness to participation ofother entities, the Vietnam power sector will get more and more private sector participants. Thetrend is towards a free and efficient electricity market. This is the decentralized incentive to reformthe power sector.Together with the decentralized forces in creating incentives to reforms in power sector,Vietnamese Government has policy on diversifying the form of power entities. Furthermore, theElectricity Law has been designed with the main idea of creating a legal framework for powermarket to accommodate competitive power entities.There is a very wide range of possible electric utility restructuring models. Three of many possibleoptions can be described:Model 1:(single buyer) sits at one extreme. In this model one simply supplements the existingindustry with the competitive acquisition of all new generating plants.Model 2:(full whole sale competition) is an intermediate restructuring option that creates a fullycompetitive wholesale generation sector. In this approach all generation would besubject to competition.Model 3:(full retail competition) is a fully competitive retail and wholesale model. All generationservices would be competitive from the generation to the retail consumption level. Inthis model only the transmission and distribution system would continue to have anyform of regulation.To modernize power sector and meet the increasing demand of energy, reforming powersector is very important in order to create a power market for all market players including EVN andother relevant entities. Vietnam is studying a Road Map for power sector reform, which wouldgradually restructure the power sector towards a more competitive market. The recommended roadmap complies with these three models applying to Vietnam circumstances.